Key Insights
- The EUR/USD pair declined by 0.38% on Tuesday, closing at $1.05744, following a prior day gain of 0.47%.
- Macroeconomic uncertainty looms, driven by weaker GDP figures in the euro area and concerns about the effectiveness of stimulus measures in China.
- Key focus is on the U.S. labor market data and the Federal Reserve’s rate decision and press conference, with market expectations for the Fed to leave interest rates at 5.5%.
The euro slipped 0.38% against the dollar on Tuesday, reversing some of Monday’s gains as economic uncertainty weighed on the common currency. The EUR/USD crossed below 1.06 before settling around 1.0575.
Weaker GDP and inflation data from the euro zone has fueled doubts about the growth outlook. Private sector PMIs in China also signaled stimulus is failing to gain traction, portending a rocky macro environment ahead.
This has led some analysts to believe the ECB may need to cut rates before the Fed, given greater economic resilience in the U.S. “Recession risks are clearly rising in Europe compared to the U.S.,” said Neil Wilson, chief market analyst at Markets.com.
Attention now turns to Wednesday’s Fed policy announcement and interest rate decision. Markets are betting on a 25 basis point hike, taking the fed funds rate target to 5.5%.
The focus will be on signals from Powell about the future pace of hikes and overall policy stance. More hawkish commentary could extend pressure on the EUR/USD, while dovishness may offer relief.
Key inputs will be today’s ADP jobs and JOLTs job openings data. Signs of labor market softening would back the case for a less aggressive Fed. Friday’s payrolls report looms large late week.
EUR/USD Price Action
On the daily chart, the EUR/USD remains situated below both the 50-day and 200-day EMAs, confirming bearish signals. A breach of the $1.06342 resistance level and the 50-day EMA would set the stage for a potential move toward the 200-day EMA. However, slipping beneath the $1.05173 support level could embolden bears and prompt a test of the trend line.
Over on the 4-hour chart, a similar scenario unfolds. The EUR/USD is positioned below the 50-day and 200-day EMAs. Breaking above the 50-day EMA would indicate a potential move towards the 200-day EMA and the $1.06342 resistance level.
Conversely, a decline below $1.05500 would bring the $1.05173 support level and trend line into focus. The 14-period RSI on the 4-hour chart suggests that a fall below the $1.05173 support level could precede an oversold condition.
